Session16: Business Ethics and Social Responsibility Dr. Mark H. Mortensen and 212 Tues &Thurs 2:00 to 3:15 3:30 to 4:45 Manning School of Business

Mortensen Consulting Group Today 1. Attendance 2. Business Ethics 3. Assignment for next class No assignment due

Mortensen Consulting Group 3-3 Corporate Governance Broader responsibility -- Private corporations have responsibility to society that extend beyond making a profit Do they?

Mortensen Consulting Group 3-4 Social Responsibility There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. Milton Friedman

Mortensen Consulting Group 3-5 Corporate Governance Carroll’s 4 Responsibilities –Economic –Legal –Ethical –Discretionary

Mortensen Consulting Group Prentice Hall, Inc. © Mortensen’s View The order and strength of the priorities for the five stakeholders, as decided by the executives, sets the tone for a company:  Customers  Employees  Stockholders  Executives  Society

Mortensen Consulting Group 3-7 Prentice Hall, Inc. © 2008 Corporate Stakeholders “Corporate Stakeholders” Affect or are affected by the achievement of the corporation’s objectives

Mortensen Consulting Group 3-8 Prentice Hall, Inc. © 2008 Corporate Stakeholders Stakeholder Analysis – –Primary stakeholder Sufficient bargaining power to affect outcomes –Secondary stakeholder Indirect stake but are affected by corporation’s actions –Stakeholder Input Determine whether input is necessary

Mortensen Consulting Group 3-9 Prentice Hall, Inc. © 2008 Ethical Behavior “business ethics” –Argument that there is no such thing … it is an oxymoron

Mortensen Consulting Group 3-10 Ethical Decision Making BAD Corporate practices -- –Massive write-downs and restatements of profit [after having gotten the bonuses for making their numbers] –Misclassification of expenses as capital expenditures –Pirating corporate assets for personal gain

Mortensen Consulting Group 3-11 Ethical Decision Making Recent Survey Results -- –70% distrust business executives –Enron –WorldCom –Banks Provocative Question -- –Why are businesspeople perceived to be acting unethically?

Mortensen Consulting Group 3-12 Reasons for Unethical Behavior Perceptions caused by -- –Not aware of impropriety –Cultural norms and values vary –Governance systems based on rule or relationships –Differences in values between businesspeople and key stakeholders

Mortensen Consulting Group 3-13 Reasons for Unethical Behavior Allport-Vernon-Lindzey Study of Values -- –Aesthetic –Economic –Political –Religious –Social –Theoretical

Mortensen Consulting Group 3-14 Reasons for Unethical Behavior Most common reasons for bending rules -- – Organizational performance required it – Ambiguous or out of date rules – Peer pressure – everyone else does it – [Greedy

Mortensen Consulting Group 3-15 Moral Relativism “Moral Relativism” says that morality is relative to some personal, social, or cultural standard and there is no method for deciding whether one decision is better than another.

Mortensen Consulting Group 3-16 Kohlberg’s Levels of Moral Development 1. Preconventional level –Characterized by a concern for self Personal interest Avoidance of punishment 2. Conventional level –Characterized consideration of society’s values External code of conduct 3. Principled level –Characterized by adherence to internal moral code Universal values or principles

Mortensen Consulting Group 3-17 Encouraging Ethical Behavior Guidelines for Ethical Behavior Ethics Morality Law

Mortensen Consulting Group 3-18 Encouraging Ethical Behavior Codes of Ethics –Specifies how an organization expects its employees to behave on the job.

Mortensen Consulting Group 3-19 Encouraging Ethical Behavior Approaches to Ethical Behavior –Utilitarian Judged by consequences –Individual Rights Fundamental rights in all decisions –Justice Distribution in equitable fashion –Categorical imperative “golden rule” Means - Ends

Mortensen Consulting Group You will be faced with ethical issues in your career Doing your taxes Getting that contract:  Your boss says “Do whatever it takes!”  Your customer requires you to use an agency Making your numbers at the end of a quarter:  “Borrowing revenue”  Stuffing the channel  Irrevocable contracts Your colleague engages in unethical behavior.

Mortensen Consulting Group 3-21 Strategy Bits 192 U.S. companies surveyed -- –92% monitored employees use of /Internet –26% monitored employees electronic activities all the time –Almost none had checks in place to protect employees privacy So be careful with unethical behavior, anyway.

Mortensen Consulting Group Strategic Management – Spring 2014